'Donate your factory' program helps entrepreneurs flourish

Chronicle/Ken StevensAdvanced Finishing Inc. is housed in part of this building at 2911 Estes in Norton Shores. Enlarge photo

Three seemingly disconnected factors combined to provide Advanced Finishing Inc. with a place to grow.

Chris Zimmerman

A U.S. tax code provision, a vision to further entrepreneurial education and a company's desire to rid itself of an unused industrial plant has helped Advanced Finishing take off.

The company is enjoying the advantages of reasonable rents and plenty of space to expand as the company gears up to increase employment and the production of parts for the electrical services sector.

And in the meantime, the entire scenario helps old manufacturing communities like Muskegon recreate themselves with new companies.

That's the result of the nonprofit Atlanta-based SeedAmerica's "561 exchange program" used by the Kaydon Corp. Not needing the vacant 162,400-square-foot manufacturing plant at 2911 Estes in Norton Shores, Kaydon donated the property last year to SeedAmerica. Kaydon continues to operate a second plant near the one it donated.

The donation was tax deductible under U.S. tax laws, allowing the ball-bearing manufacturer to reduce its state and federal business tax liability, according to SeedAmerica President Steve Zimmerman.

SeedAmerica was able to offer Advanced Finishing plenty of manufacturing space at a reasonable lease rate because the building was a donation. It continues to seek other tenants for the facility.

"Advanced Finishing wouldn't be in Muskegon County if it was not for SeedAmerica," said Rich Houtteman, business development specialist for Muskegon Area First, the economic development agency.

When Advanced Finishing received a huge contract for electrical parts from Hubbell Corp., Dave Elmer's company needed much more space than he was leasing in a building on East Broadway Avenue. The growing company was headed for northern Ottawa County until the SeedAmerica building became available, Houtteman said.

SeedAmerica was established in 2000 by founder Joe Johnson, who came out of the magazine publishing world with a vision of launching a group of entrepreneurial schools throughout the country. The use of the 561 exchange program is the fundraising mechanism for the still-developing business schools, Zimmerman said.

SeedAmerica has been receiving older industrial buildings since a ConAgra Corp. facility was donated in late 2004. It now has a portfolio of more than a dozen buildings in eight states with the industrial Upper Midwest well represented. Besides the Muskegon plant, Kaydon did a similar deal on their facility in Greenville, Tenn., Zimmerman said.

According to SeedAmerica, a typical 100,000-square-foot vacant industrial building can cost the owner more than $200,000 a year. Companies with vacant plants still pay property taxes and other expenses include security, insurance, heat and water for fire suppression systems along with routine maintenance.

The SeedAmerica program must have the right building in the right location and a company looking to lessen its tax liability, Zimmerman said. SeedAmerica finds that larger corporations are in the best position to use the 561 exchange program, its president said.

"We found Muskegon when we found a building that fit our profile," Zimmerman said. "Our plan is to hold our buildings long-term and generate income to feed our endowment and our educational purpose."

To show the benefits to companies with vacant plants, SeedAmerica uses an example of a facility that is appraised at $2 million but may not sell for more than $1 million in a depressed industrial real estate market.

If the company has more than $4 million in annual income, the Internal Revenue Service rules allow the donation to be totally written off in one year. So the $2 million donation could net $800,000 in tax savings where as the sale of the building at $1 million might net the company only $600,000 in profit after taxes and expenses are paid, according to SeedAmerica.
Advanced Finishing Inc. is housed in part of this building at 2911 Estes in Norton Shores.